PL Stock Report: Chambal Fertilizers & Chemicals (CHMB IN) - Q1FY24 Result Update - In-line quarterly performance - HOLD

Chambal Fertilizers & Chemicals (CHMB IN) - Himanshu Binani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs275 | TP: Rs300

Q1FY24 Result Update - In-line quarterly performance

Quick Pointers:

♦ 1QFY24 subsidy receipts at Rs29.5bn, up 54% YoY

♦ TAN project on track; likely to come up by 3QFY26

Chambal Fertilizers (CHMB) reported decent performance with Revenue/EBITDA/PAT growth of -23%/+7%/+6% YoY and were in line with our and consensus estimates. Decline in revenues was largely on the back of a) decline in RM cost resulting into lower subsidy income from the Govt. and b) lower sales volumes in Non-urea traded fertilizers (down 29% YoY). Gross margins improved by 630bps YoY to 34.9% primarily led by lower RM cost, while higher employee cost and other expenses up 40bps/290bps YoY respectively has restricted EBITDA margins improvement to 320bps YoY to 11.3% (PLe 9.8%). PAT was up 6% YoY to Rs3.3bn.

Going forward, management alluded that most provisions for high cost inventory are largely behind, however they remained cautious on further cut in subsidy rates during 2HFY24. Further, robust subsidy disbursement from Govt. till YTDFY24 coupled with falling RM cost scenario will likely keep working capital at comfortable levels along with healthy balance sheet. However, lack of earnings growth visibility in core business and delayed capacity expansion in TAN business (3QFY26) may keep stock performance under check. Maintain ‘HOLD’ with unchanged TP of Rs300 based on 9XFY25 EPS.

♦ Overall fertilizer sales volumes declined by 5% YoY (+9% YoY growth in Urea being offset by 29% YoY decline in Non-urea traded volumes): During 1QFY24, Overall sales volumes stood at 1.19mn mt down 5% YoY largely led by 9% YoY growth in urea volumes to 0.86mn mt being offset by 29% YoY decline in Non-urea traded volumes to 0.33mn mt. Crop protection and Specialty Nutrients segment posted revenue growth of 17% YoY to Rs3.0bn. Gross Margins improved by 630bps YoY to 34.9% primarily led by lower RM cost, while higher employee cost and other expenses up 40bps/290bps YoY has restricted EBITDA margins improvement to 320bps YoY to 11.3% (PLe 9.8%). PAT was up 6% YoY to Rs3.3bn.

♦ Robust subsidy receipts during 1Q’24: Subsidy receipts during 1QFY24 stood at Rs29.48bn up 54% YoY. Further, management highlighted that subsidy disbursements from government has been robust in July’23 as well which in turn has resulted into negligible short term borrowings for them till July’23 end and expects this momentum to continue for rest of FY24.

♦ Capex plans of ~Rs8-9bn in FY24E: CHMB has revised its TAN expansion plans during 1HFY23 with a capital outlay of Rs16.45bn (Rs11.7bn earlier) to build 0.24 mn mt (0.22 mn mt earlier) and is expected to be commissioned by Q3FY26. The project is expected to be funded equally through debt and equity. Company has so far spent Rs1bn during FY23 and has guided to spend Rs5bn in FY24. Management also alluded that they would spend an additional capex of ~Rs3-4bn for further enhancing their energy efficiency in Urea plants FY24.

♦ New product launches drive the show in Crop protection & Specialty Nutrients: CPC & SN portfolio continued to perform well and registered 17% growth during 1QFY24. Company has launched 5 new products during 1QFY24 (2- weedicides, 1-Herbicide, 1-Fungicide and 1-Insectcide). Management alluded for double digit growth in the segment going forward.

(Click on the Link for Detailed Report)